Fortune Oil specialises in the downstream gas distribution business in China. It operates and controls pipelines and reticulation networks for the supply of natural gas in Shanxi Province and intends to supply compressed natural gas from CSM fields to its gas distribution companies.

Under the agreement, Fortune will be entitled to 60% of Molopo’s interest in the Liulin project by contributing $US2.5million (A$3.46 million) to the project.

The bulk of the funding is expected to be applied to production testing, aimed at identifying a stimulation technique that could be applied to the estimated 700-800 billion cubic feet (740-845 petajoule) gas resource.

“Fortune Oil will add tremendous downstream gas expertise in China as well as sufficient funds to appraise the large gas resource at Liulin,” said Molopo managing director Stephen Mitchell.

The transaction is conditional on approval from the Chinese authorities and Molopo’s partner, China United Coalbed Methane.

Molopo and China United each currently hold 50% of the project. Following the transaction, Molopo will own 20% and Fortune 30%, while China United will retain its stake.

Fortune told the London Stock Exchange that the Liulin block was one of the best geologically-proven CSM blocks in China.

“Analysis from coal holes and exploration wells has indicated an in-place gas resource of approximately 0.8 trillion cubic feet,” Fortune said.

“With a successful appraisal program, this resource may be converted to recoverable reserves in the order of 400 billion cubic feet in an area of approximately 200 square kilometres.

“The gas recovered to date is over 95% methane, located in three main coal seams at a depth of 400 to 700 metres. The coal parameters such as permeability, gas content and seam thickness are favourable for coalbed methane drilling.”

While China has one of the world’s largest reserves of CBM, the industry is still in its infancy and output is only 3.5 tcf per year.